Good morning and welcome to IPG Photonics' second quarter 2009 conference call. Today's call is being recorded and webcast. At this time I would like to turn the call over to Angelo Lopresti, IPG's Vice President, General Counsel, and Secretary for introductions. Please go ahead sir.

Thank you and good morning everyone. With us today is IPG Photonics' Chairman and Chief Executive Officer, Dr. Valentin Gapontsev; and Vice President and Chief Financial Officer, Tim Mammen. Statements made during the course of this conference call that discuss management's or the company's intentions, expectations, or predictions of the future are forward-looking statements. These forward-looking statements are subject to known and unknown risks and uncertainties that could cause the company's actual results to differ materially from those projected in such forward-looking statements. These risks and uncertainties included – include those details in IPG Photonics' Form 10-K for the year ended December 31, 2008 and other reports on file with the Securities and Exchange Commission. Copies of these filings may be obtained by visiting the Investors section of IPG's website at www.ipgphotonics.com or by contacting the company directly. You may also find copies on the SEC's website at www.sec.gov. Any forward-looking statements made on this call are the company's expectations or predictions only as of today, August 4, 2009. The company assumes no obligation to publicly release any update or revision to any such statement. We will post these prepared remarks on our website after the completion of the call. Please go to www.ipgphotonics.com and select Investors to review these remarks. I will now turn the call over to Dr. Gapontsev.

Good morning. And thank you for joining us today. As you know already our, second quarter revenues of $40.4 million came in at the low end of our guidance range, down 28% year-over-year. We also reported a loss of $1.2 million for the quarter, or $0.03 per share. And while we fell short of our bottom-line guidance, we continued to cut expenses and capital expenditures, and we also continued to generate cash. Overall, our financial performance continues to reflect the global economic downturn. The good news from this quarter is that high power lasers, which are now our most significant contributor to sales, continued to grow on a year-over-year basis. We are seeing growing market acceptance of fiber lasers in high power applications as users continue to move away from traditional lasers and turn to IPG’s superior high power sources for cutting, welding, brazing, cladding, and other applications. We also continue to see new applications for our high power lasers. Please note that high power lasers for cutting and welding is the largest available market for industrial lasers, much larger – larger than the market opportunity for marking lasers. Let me discuss some operational highlights for the quarter. First, we sold our first pulsed green lasers and we are now accepting customer orders. We have strong customer interest and several units are in customer tests now, including solar. We have also started to ship two other new exciting product families. One of them provides high energy per pulse, up to 50 million joules in nanosecond pulses. This unique laser family opens exciting new opportunities in LCD display processing, automotive, and other applications. The second new product family is our long pulse fiber lasers targeted at replace – at replacing lamp pumped YAG lasers. These lasers have pulse durations from hundreds…

Thank you, Valentin. Good morning everyone. I want to provide an overview on financial results before I review our markets and business lines. As Valentin mentioned, we reported a net loss of $1.2 million or $0.03 per share in line with our announcement on July the 23rd but below our original guidance range. Our Q2 earnings were lower than expected for three primary reasons. First, we had lower absorption of fixed costs due to lower sales volumes and a reduction in the level of inventory during the period. Second, we experienced pricing pressure for our high power and pulsed lasers because of the macroeconomic and competitive market. We expect pricing for kilowatt lasers to stabilize at current demand levels. Third, we increased R&D expenses in the quarter in order to get new products ready for production and to accelerate the development of other products and product enhancements. I’d like to now provide a brief update on our cost reduction initiatives. In the second quarter, we reduced expenses by $1.5 million, compared to the average quarterly expenses for 2008. These reductions are due to lower bonus accruals, short workweek programs, workforce reductions and other expense savings. We have also reduced general and administrative expenses such as legal, accounting, and consulting. However, some of these cost savings have been offset by lower absorption of fixed costs and an increase in certain R&D expenses as I mentioned above. While we have reduced our cost structure, we will continue to review the business in order to identify other potential expense reductions and, in particular to track how the remainder of the year is trending in terms of any potential recovery in sales volume. Also, because many of our cost reductions, such as reduced workweeks are temporary in nature, we will continue to evaluate whether…

Thank you. (Operator Instructions). Our first question comes from Avinash Kant with D. A. Davidson. Please proceed with your question. Avinash Kant – D.A. Davidson & Company: Good morning, Valentin and Tim.

Morning.

Good morning, Avinash. Avinash Kant – D.A. Davidson & Company: Quick question first on in terms of the outlook that you’re talking about, its remaining kind of at the same level. Do you mean that in Q4 also you would have similar revenue as you have in Q3 or you’re talking about second half versus the first half?

I think we are talking about the second half versus the first half. We can't at this point in time provide specific guidance about Q4 just it's a little early to do that. Where we stand coming into Q3 though, if I look at the equivalent period we were at, at the beginning of Q2. In terms of shippable orders in hand, we are in a better position and I think have greater confidence in the guidance we’re providing right now compared to the beginning of the second quarter. Avinash Kant – D.A. Davidson & Company: And I believe there were some larger orders that you were expecting to close on have you received those orders already or you are waiting on them, especially from the auto side?

We've had another new order for example from BMW, so that confirms strengthening that relationship. I would say that, we've had a couple of orders as well from Ford, we’ve definitely seen some activity on positive movement on Daimler in Germany. Also some activity with people like Audi but we hadn’t talked about expecting any 10 or 20 unit orders in the immediate future. I think we are still looking at 2010 for that, but I would say right across the board, there has been a strengthening of our relationship with just about every single automotive manufacturer. And interesting I was just looking at some of the numbers, our automotive sales this year, both direct and to OEMs are actually up on the first half of last year despite the tremendous weakness in that market. Valentin can probably add some stuff on any other relationships that we are seeing strength from.

We're practically now working with all, practically 90% of all the major automotive companies and with all of them, test result and the use of our laser they use now that will have very positive return back. So we don’t have any problem with any of these automakers, to compare with other players in the market who have a very big problem. Avinash Kant – D.A. Davidson & Company: Okay. And Tim you talked about the margin decline and of course you could expect some pressure from competition. And you said you see this in the foreseeable feature, so do you mean that, if you were to return at similar levels as you had in the past, your margins will be lower than what you achieved in the past cycle?

In the near term if we were to get back up to like $55 million right now with the component cost base, yes margins would be a little bit lower I would say, you would be targeting like 42 to 45 rather than 45 to 48, but we are working on several areas where the component cost base should come down as we run through existing inventory, so for example, we announced the introduction of these very high powered diodes. That will reduce the cost per watt on the diodes. It will reduce for example also production time because fewer splicers are required. Avinash Kant – D.A. Davidson & Company: Right.

We are also introducing other lower cost components. We will also see in 2010 real benefit from the introduction of our beam combiners and… (Multiple Speakers) Avinash Kant – D.A. Davidson & Company: Now taking about diodes though, overall it looks like the prices of diode have come down significantly. Now could you talk a little bit about the differential that you still have, compared to the diode prices out there and the one that you are making?

I mean, probably diode prices in the open market are down, but there is still a significant advantage that we have, we would say we’re probably somewhere between 20% to 30% of the cost in the open market. There is nobody really out there, who is buying in the volume though that we use, so it's very difficult to put a definitive number on that. In the low volumes that people buy, the price of the diodes in the market is much, much higher than we are at right now. It remains a key competitive advantage of ours. Avinash Kant – D.A. Davidson & Company: And then final question, could you give us the depreciation and the headcount number at the end of the quarter?

The depreciation and amortization number is on the release on the cash flow. It was. Avinash Kant – D.A. Davidson & Company: Okay.

We have… Avinash Kant – D.A. Davidson & Company: 4.7 I believe.

I haven't got it at hand right now. Avinash Kant – D.A. Davidson & Company: That's fine, I'll look it up, yeah, and what was the headcount?

We don't disclose headcounts on a quarterly basis. Avinash Kant – D.A. Davidson & Company: Okay. Perfect. Thank you so much.

We try to save our key people so we don't use up to now any essential labor cut. Avinash Kant – D.A. Davidson & Company: Thank you so much.

Our next question comes from C.J. Muse with Barclays Capital. Please proceed with your question. C.J. Muse – Barclays Capital: Yeah. Good morning. Thank you for taking my question. I guess on the first part, sort of thinking medium/longer-term on the competitive landscape, aside from the marking market, can you comment on where you're seeing increased competitive pressure within fiber lasers. And then I guess in terms of your bread and butter higher power segment, can you talk about, what you're doing there to continue to separate yourself from your competitors?

So I’d say the competition is really still primarily focused on pulsed lasers. There are numerous people out there manufacturing, there is a couple of people who bought a lower quality device to market in China. Across the other products in terms of fiber lasers, even at the medium power level and the high power lasers the competition is very, very much more limited. I would say that where we are seeing more of the pricing pressure, it's particularly from TRUMPF and their disc laser that we are having to compete on certain customer wins there. So the competition is really coming from some of the other more legacy laser systems rather than on fibre at those higher power levels. C.J. Muse – Barclays Capital: So, as you have those discussions with customers then on pricing and clearly your cost of ownership is a nice tailwind for your customers, I guess can you talk about how you're positioning pricing, because it sounds like you're now flat, was that really necessary given the competitive advantages of your tools?

In this environment it really yes, it was C.J. I mean customers are putting, particularly where they were going they had TRUMPF point into them. Customers are putting pressure on the all sides of the partnership and in order to win some very key customer relationships we did have to become competitive on the upfront pricing cost. The other strategy though is well is that particularly in this environment the lower total cost of ownership to be earned over a period of years. You also have to be it becomes a more difficult proposition I think just to simply sell on that basis in order to really penetrate the market particularly on cutting and these high volume units. You do have to become upfront competitive on an upfront cost basis as well as offer those lower operating, lower total ownership cost. C.J. Muse – Barclays Capital: Okay.

And that will really drive significant volume increases here. We don’t want to just be selling 300 or 400 high-power lasers a year. We want to be getting into selling thousands and more than a 1,000 high-power lasers a year. C.J. Muse – Barclays Capital: Okay, it makes sense. And then I guess on your geographical mix, U.S. holding up much better than Europe and Asia. And I guess my question is here, why do you think that is that because of your larger footprint here, you’ve had more years here, more years for your customers to get their arms around fibre lasers and I guess as a follow on to that when will we start to see the breadth of ordering from non-U.S. customers?

I think it’s the other way round. First of all, it’s probably an earlier stage of penetration in the U.S. and also some newer applications and industries particularly in battery welding the 20-kilowatt we sold into a very advanced materials processing application. In Asia and Europe we had far more OEMs selling lower power and pulsed laser devices. So when those sales drop down relatively speaking they have a bigger impact in Asia and Europe. If you strip out the pulsed laser side of it and you look and focus on the high power lasers in Europe and Asia there is probably an equivalent amount of stability. So, the U.S. just had less wider adoption on the pulsed laser sales. They haven’t got to the level like for example [TRUMPF] was a 7% or 8% cuts from about a year ago in Japan. The first half of this year had just been very, very weak for them, so it’s more of the impact on the pulsed and low power that tends to give a indication of a steeper drop in sales in those other areas. C.J. Muse – Barclays Capital: Okay. It's helpful. And last question for me, can you provide some help or guidance around the gross margin and OpEx levels for September?

I am a little bit worried about it about, doing that. I think we factor that in when we give the guidance, I would say at the bottom end of our guidance we are factoring in continuing to take inventory levels down, which is why we still see a loss there. And gross margins would be probably around the 30% level as well. As we come into, and its very difficult on the inventory planning right now to tell you exactly what we are going to do, because as we see order flow coming through August and September, we will then make production decisions on what we need for Q4. So, if we see Q4 with some additional strength instead of taking inventory down, we may stabilize inventory and increase productions to meet that demand in the fourth quarter. If we did that and we got to the top end of our guidance range, I would expect to be above 35% in gross margin. C.J. Muse – Barclays Capital: It's helpful. And on the OpEx, I'd think that would be a little easier?

OpEx levels will basically be R&D and SG&A will basically be flat with the quarter. C.J. Muse – Barclays Capital: Perfect.

During the quarter. In Q4, you should probably take into account some higher legal expenses. They won't be that material in Q3, but Q4 should probably factor in about $750,000 potentially on legal expenses. C.J. Muse – Barclays Capital: Thank you very much.

Our next question comes from Jim Ricchiuti with Needham & Company. Please proceed with your question. James Ricchiuti – Needham & Company: Hi, thank you. You mentioned that Q3 started off better than Q2. Then I wonder how do you characterize the first month of Q3 say with the month of June. And I recognize you see a lot of activity probably late in the quarter?

So just in terms of book-to-bill, we had a book-to-bill in excess of Q, in excess of one in the second quarter. So in terms of shippable backlog right into the beginning of Q3, we had a greater percentage of shippable backlog relative to guidance. It was probably up to about 75%, whereas at the beginning of Q2 it was 65%. In the second quarter, we knew we had some big orders that we’re coming in towards the end of the quarter those it did come in. And July, the first few weeks of the quarter in terms of order flow show relative stability with April, May, and June as well. So that stability we talked about has continued to be maintained. James Ricchiuti – Needham & Company: Okay. That’s helpful. Based on your guidance that you’re giving at the low end roughly, sequentially flat, I’m just curious do you see much of a seasonal downtick in business in Europe and if so, are you anticipating some improvement in some of the other geographies possibly in Asia, Australia, which was down year-over-year quite a bit?

I would say we’re a little bit worried about, August just being a very slow month or could be a slow month for orders, just with all the vacation time particularly in Europe, but the guidance really reflects, I think a couple of things that sort of timing of export licenses for orders that we already have in hand for China and a lot of those are the kilowatt scale lasers. If some of those export licenses has even slipped by four or five weeks. We could see a couple of million dollars revenue slip related to those. We’ve also got some revenue recognition on a couple of high dollar items in Japan for the schedule to be delivered at the end of the quarter. So we just want to provide some comfort that we are going to be able to, if those slip as well, we are going to be able to manage around that. James Ricchiuti – Needham & Company: Okay. Then just regarding the last point you made about Japan are you seeing some signs of improvement there, or was this just a customer that has been very weak and just came back with an order late in the quarter?

Well, it's actually customers that placed orders for specific delivery in September. James Ricchiuti – Needham & Company: Okay.

The Q, the pulsed laser orders through Q2 were weak. The remaining order flow in Japan was relatively stable coming into the beginning of this quarter we actually got our first meaningful order from the major marking customer in Japan. And that’s for delivery, those are lower power units, so they don't affect revenue recognition so much, but they are for delivery at the end of this quarter and the beginning of Q4. So its pleasing to see that order come in, I would say the first few weeks of the quarter in Japan in terms of order flow have been a little bit weak, but then just over the last couple of days, there has been some pick up there a little bit. James Ricchiuti – Needham & Company: Okay. Thank you.

And the pulsed laser in Japan, our major customer, they’re have done with now, with the order, so for second half of the year, pulsed laser from Japan would be much higher order than it was. James Ricchiuti – Needham & Company: All right. Thank you.

Our next question comes from Joe Maxa with Dougherty & Company. Please proceed with your question. Joseph Maxa – Dougherty & Company: Thank you. I just wanted another update on the high-power lasers, the 10-kilowatt you sold, I was wondering what application and then an update on your expectations for perhaps the number of these multi-kilowatt lasers you may sell in the second half?

Hi, Joe. I think you're referring to the 20-kilowatt. That was a very advanced materials processing application that we cannot talk about. Joseph Maxa – Dougherty & Company: Okay.

We are under an NDA with that. And then in sort of the multiple unit I think well, specifically on the high-power side, we will see some pickup in high-power laser sales coming into Q3. There is no sort of 10 or 20 unit order that’s driving out at the moment, there are numerous orders coming in from new customers. For example, on the cutting side, like Salvagnini, Prima, this customer that’s developed this application for scribing magnets is going to place some multiple unit orders. Those are sort of in the order of like three to four units. Some of the auto manufactures are still talking 40 to 60 units, but the likelihood of those are still 2010, not the second half of this year at the moment. Joseph Maxa – Dougherty & Company: When Valentin mentioned the 10-kilowatt single-mode laser, I thought did I understand you, did he say you accepted the first order?

Yeah, sorry. That we do have an order for that it's in the advanced government application arena for directed energy. Joseph Maxa – Dougherty & Company: And you expected that this second half?

The order is already in hand. Yeah that will ship sometime during the second half of the year.

A clear demonstration that its possible to get from fiber lasers 10-kilowatt single-mode. Nobody even one-year before, nobody believed it’s possible in principle. Now we have demonstrated this critical point in practical way overcome the result of application and directed then into the application with fiber lasers. So but we need to still qualify this laser, because we are careful, we’ll have now equates from some other people to ship that actually, but we still need some time to make specification to finish development. Joseph Maxa – Dougherty & Company: Okay.

But it’s very perspective in ways of some application. Joseph Maxa – Dougherty & Company: Okay. And then another topic, I was just wondering did you breakout what percentage of your revenue comes through your system integrators or OEMs versus direct?

No we don't, we view the system integrators and OEMs as direct, we don’t view them as a distribution relationship. Joseph Maxa – Dougherty & Company: I see. Okay. Thank you.

(Operator Instructions). Our next question comes from Jiwon Lee with Sidoti. Please proceed with your question. Jiwon Lee – Sidoti & Company: Thanks for taking my question. Just two quick ones, I understand your frustration towards the market, but as the upfront cost as well as the overall cost of ownership become more competitive with the legacy lasers, when the market does come back I’m wondering, which applications do you expect to pick-up better for you, whether it is cutting, welding, or cladding and sort of relatedly if that scenario materialize, what end-market would end-up being the biggest for you like auto or general industrial?

We are sure that material gross margin would be the biggest in the nearest future and so we are sure that our position in the major today, major application is cutting, the cutting up to $800 million to $900 million is the biggest application for laser today, for high power lasers. And we have – about this year we have penetrated this market, we are growing very successful, we built now the price structure and all other performance, very competitive with traditional CO2, which dominates in this market niche. Other applications we were sure, we will be very successful in new application is for example, our long pulsed laser, which now is still crystal laser, YAG laser, it's a 300 million market for some applicants that people need a high energy, but powerful like many joules per pulse. Before fiber laser did not compete at all in this market such company like TRUMPF and now they have very good business. Now we introduce this market, new fibre laser. We assure you in a couple of years, we will be a dominant player in this market segment also. From other application, we are sure that, we will turn back very aggressively on the telecom market, however, we create now what new platform and complete solution that before we talked only parts for this market segments. Now we develop very perfect complete solution, complete DWDM system for long haul, also broadband application for digital TV and we very aggressively go in rebound back for this market. We are building our telecom market, share of telecom will rebound back not from few percent, but will be 20 plus percent in our total growing revenue. In medical market also we have very serious perspective. Before we worked practically only with one customer OEM. It was [Reliant]. We now have more than 10 OEM customers and this business start to grow again. So medical market also increased share in our total revenue, very essential, in spite of growth in industrial application. Jiwon Lee – Sidoti & Company: Okay, Valentin, that’s helpful. And then on the defense side earlier this year, there were couple of opportunities to procure the laser-based weapon system. Can you give us an update as to where those opportunities stand?

There is nothing really specific to report on that, there is continued developments and process work being done by people. We continue to speak to just about every defense contractor out there. I think our lasers are being used in some areas where people are not prepared to talk about them. I think that there is an indication even at the lower power level on the 2-kilowatt side that we could see some orders, the IED and mine destruction capabilities coming into 2010. So there is really no specific update to provide on that, Jiwon, I think that it just continues to develop. Jiwon Lee – Sidoti & Company: And one more thing, what about some updates on the solar side of the business?

Coming into the second quarter, solar was a little bit weaker than a year ago. I think we are waiting to hear on a couple of projects, which are supposed to come back on stream at the end of this year, and hopefully one order that should be a couple of hundred units that would be for delivery in the first quarter of next year. We’ve actually had some good order flow outside of Europe and the U.S. with some of the – we got in with a Japanese integrator these are supplier to Sharp. And we've had some decent order flow on that on the first half of the year, but the solar market remains choppy at the moment.

We have a lot of request for pulsed lasers, and we claim before we develop such a laser, but it took the time to finish specification to prepare for mass production. Now we're ready for this. We're starting to ship this pulsed laser, and we believe during the couple of quarters, the pulsed laser will bring us lot of revenue. For a special for solar application, because of people require the pulse this green wavelength. Jiwon Lee – Sidoti & Company: Excellent. That's helpful. Thank you.

Our next question comes from Sven Eenmaa with Thomas Weisel Partners. Please proceed with your question. Sven Eenmaa – Thomas Weisel Partners: Yes. Hi this is Sven Eenmaa calling in for Ajit. Couple of questions, first one is on the gross margin side, you mentioned that you took an inventory write-off around $1.4 million. What components or products did that pertain to?

General, I mean, older style optical components we also looked at the specific diode chip and identified some potential excess quantities on an older style chip, so that was where our focus was. It's always optical components that are sort of older and that are not being consumed at the moment for the next quarter as well, we looked at a little bit of excess that could potentially arise on an older style chip, Sven. Sven Eenmaa – Thomas Weisel Partners: Okay. So in terms of, if you look at the September quarter, you guys expect to take, put in inventory write-downs?

I'd hope that they're more moderate than Q2. Sven Eenmaa – Thomas Weisel Partners: Okay.

Take in mind this component is still good quality, so we will plan to use in the future, but according SOX rules we have to make this. Sven Eenmaa – Thomas Weisel Partners: Okay. And in terms of, if I look at the gross margin range for the next quarter I think you mentioned 35% as the high end, where do you expect it to be at the low end?

I mentioned about 30%, but that would also factor in a further reduction in inventory. Sven Eenmaa – Thomas Weisel Partners: Okay.

But I characterized that, because we have to make our production planning decisions coming into the end of August for September and that will be driven by outlook for Q4. Sven Eenmaa – Thomas Weisel Partners: Great. That’s very helpful. And in terms of, if I think of the R&D spending levels going forward here is, are you currently at the run rate where we expect to be through the end of the year or is the current level just associated with a couple of products, you are launching in near-term?

So, I think Q3 still be relatively the same level of R&D and then coming into Q4 as we move into actually a high level of production particularly, hopefully of the green lasers, and also start to increase production in some of the newer diode chips, we should see R&D come down a little bit in Q4.

Of the Prima, which we've done in from a development to the production level we sold, I expect R&D in quarter four would be less. Sven Eenmaa – Thomas Weisel Partners: Okay. And my final question just to clarify in terms of the pricing impact going into the second half of the year, do you see the primary pricing pressures then in the medium power and pulsed laser side, it sounds like in the high-power side did I see stabilization?

You have to understand that pulsed laser on lower end, pulsed laser becoming commodity product, so a lot of competition and price will go down in such cases, usually in the market. So, but to compensate that introduction market, high energy with pulsed laser, which is still unique nobody has similar products, we don’t except they will able to introduce a similar product during couple of next year. So they're much more productive in applications than low power lasers, and we believe that will compensate and they also would be much more profitable. Sven Eenmaa – Thomas Weisel Partners: Okay, great. Thank you very much.

At this time we have reached the end of the Q&A session. I will now turn the conference back over to Dr. Gapontsev for any closing or additional remarks.

Okay. Thank you for joining us today. We plan to continue to make progress in executing on our operational and financial goals during the second half of 2009. Moreover, we expect the strategic decisions that we have made internally and externally should help ensure that IPG is able to capitalize on our growth opportunities. We look forward to speaking with you again following the third quarter with I believe I hope with much better results.

And that concludes our conference call. Thank you for joining us today.